US Dollar Surges as US Jobs Report Gives Fed Scope to Boost Rates

New York (Nov 6) The dollar soared after a surge in US hiring bolstered the case for the Federal Reserve to raise interest rates next month.

The currency advanced to its strongest since April versus the euro and its highest in more than two months versus the yen after a Labor Department report showed the U.S. added the most workers in almost a year last month, beating all forecasts. Bloomberg’s gauge of the greenback advanced to its highest in data going back to January 2005.

“Very impressive,” Fabian Eliasson, head of U.S. corporate foreign-exchange sales in New York at Mizuho Financial Group Inc, said of the report. “This obviously supports a sooner-rather-than-later rate hike, and that would obviously be very supportive of the dollar.”

The dollar strengthened 1.4 percent to $1.0730 per euro as of 9:53 a.m. in New York, touching its highest since April 23. It added 1.1 percent to 122.89 yen.

The Bloomberg Dollar Spot Index rose 1 percent to 1,231.50, after touching 1233.44. The dollar gained against all 10 of its major peers.

December Decision

Traders boosted bets that the Fed will raise rates next month after the labor report. There’s a 70 percent probability that the central bank will raise its benchmark rate at its December meeting, according to futures data compiled by Bloomberg, up from 56 percent before the report’s release. The calculation assumes the effective fed funds rate averages 0.375 percent after the first increase.

Labor Department data showed U.S. payrolls increased by 271,000 in October, versus estimates for a gain of 185,000 in a Bloomberg survey of economists. The jobless rate fell to 5 percent, the lowest since April 2008, while average hourly earnings climbed from a year earlier by the most since July 2009.

“This number sends a clear message that whatever slowdown in hiring we saw in August and September has been very decisively reversed,” said Omer Esiner, chief market analyst at currency brokerage Commonwealth Foreign Exchange Inc. in Washington. “This certainly bodes well for the dollar.”

Policy makers are monitoring economic reports to assess whether it’s appropriate to lift rates for the first time since 2006 next month. They get one more set of monthly labor statistics before their next meeting Dec. 15-16. Fed Chair Janet Yellen said this week that a December rate increase is a “live possibility” if economic data hold up.

"The headline number absolutely buttresses an expectation of a Fed hike next month," Bipan Rai, director of foreign-exchange strategy at Canadian Imperial Bank of Commerce’s CIBC World Markets unit, said by e-mail from Toronto. "Today’s number was all about signals, and this is a strong one for Fed hawks."